Although I specialize in owner financing via contract for deed (which is better than rent-to-own), I felt this article is informative.

Found on ChicagoTribune.com is the Renter’s Guide section on August 12, 2005.

Rent-to-own Strategies Lead to Homeownership

By Janice Rosenberg

Special to the Tribune

August 12, 2005

That renters eventually graduate to homeownership is a fact of life for rental management companies. But rather than bemoan the loss in business, some companies are encouraging their residents to make the leap to buy a place.

For example, Marquette Management Inc. in Romeoville, which manages more than 10,000 apartments in seven states, including about a dozen properties in the Chicago area, says it is attracting new renters to its properties through its Smart Rent program. Managed with partner Paramount Bank in Farmington Hills, Mich., the rent-to-own program is designed to prepare tenants for homeownership by offering financial counseling sessions and helping tenants pre-qualify for mortgages.

One Marquette tenant, Katie Kieffer, 24, a hotel sales manager, says she hopes to buy a two-bedroom home in the northwest suburbs next year.

“My Smart Rent agent has been helpful in finding out what I can afford and counseling me on what my next plan to action should be,” Kieffer said.

Whether custom designed by a renter or arranged under the auspices of larger programs, rent-to-own arrangements can help people who might otherwise be unable to purchase a home–even at today’s low interest rates.

Sellers pros and cons

Basic rent-to-own setups most often are used by developers as an alternative marketing device in difficult real estate markets, said Mark B. Weiss, author of “Secrets of a Millionaire Real Estate Developer” (Dearborn Trade Publishing, $22.95).

Weiss used the technique himself several years ago when he advertised one remaining unsold condominium unit in a development as a potential lease-to-own. He signed a one-year lease with the tenant and attached a sales contract to the lease saying that if the tenant entered into a contract to buy the unit within the first 180 days of tenancy, the tenant would be able to use 75 percent of the rent he already had paid, plus the security deposit, toward a down payment.

“My motivation was to get the tenant interested,” Weiss said. “I worked with a mortgage broker who did a credit check and interviewed the tenant, and that gave us six months to help the tenant clean up any credit problems too.”

Although rent-to-own opportunities still crop up, a number of factors account for them being offered less frequently today than they were 20 years ago.

First, the Chicago real estate market is hot. Developers are less likely to be carrying unsold units that would inspire rent-to-own offers.

Second, because interest rates are low and mortgages currently are available with up to 103 percent financing, people with jobs and good credit ratings don’t need rent-to-own options, said Millie Rosenbloom, president of the Habitat Brokerage Division in Chicago.

Finally, people who would benefit the most from rent-to-own are the least likely to be offered the plan. John Veneris, president of the Illinois Association of Realtors in Springfield and broker-owner of Realty Executives Pro/Team of Downers Grove, said that tenants interested in rent-to-own for the most part have credit issues that prevent them from buying.

As a property owner, Veneris says he would be hesitant to rent to people with such issues, let alone become involved with them in a rent-to-own situation.

Planning ahead

Marquette Management’s Smart Rent program is unique in the United States, according to Rick Harb, managing director at Marquette Management. Unlike traditional rent-to-own programs in which rent money can be earmarked for the down payment of a specific property, Marquette’s program is more about financial planning.

All Marquette tenants are offered the option of enrolling in Smart Rent. Those who are interested attend counseling sessions that help them determine the cost of the home they can afford. They also get help pre-qualifying for a mortgage. In return, they must agree to live in the Marquette unit for at least a year.

The company has a 95 percent occupancy rate, and says between 20 to 25 percent of its renters are attracted by Smart Rent.

“We’re helping people prepare themselves for future homeownership, and it helps us too,” Harb says. “We wanted our program to be portable. Rent-to-own has a limited scope. Working with Paramount means people can build or buy a house anywhere in the United States.”

Paramount Bank participates in the program in several ways. It offers members Smart Rent Savings Account passbooks that encourage regular deposits, prepares credit reports on Smart Rent members, works to pre-approve members for mortgages, and helps members determine how much money they’ll need for a down payment and closing costs. For those who purchase homes when they leave Marquette and use Paramount as their lender, closing costs, application fees and appraisal fees are reduced.

“After 17 years in the mortgage business, I’m frightened for what my industry has done for the first-time home buyer,” said Bob Waun, vice president of private mortgage banking at Paramount. “Purchasing a home with a zero down payment serves a purpose, but I think if you’re going to buy a house, you ought to buy a piece of it right away. A down payment makes people feel more responsible.”

Paramount also hired Dee Dee Sung, known as “The Debt Free Diva” (www.debtfreediva.com), to teach Smart Rent tenants about budgeting and getting out of debt. The author of “From Self Worth to Net Worth,” Sung addresses financial literacy and the emotional aspects of people’s relationships with money. She also educates tenants about home buying with an eye toward preventing them from becoming so stretched financially that they can’t pay the monthly mortgage.

Do it yourself

Even without support from management and bankers, renters can negotiate their own rent-to-own plans. For instance, people living in rental buildings that are being converted to condominiums can initiate the idea with the building’s developer.

That can be a smart business move and a person’s best entry into the real estate market, Weiss said.

When you receive a letter stating that the building is being converted, you also should receive a price list, Weiss said. If you aren’t ready to buy at the moment, he suggests telling the developer you may be interested in buying over the next few months and you would like to use a portion of your rent payments as a down payment.

“Don’t wait for the developer to offer it to you,” Weiss said. “You like the unit and know the neighborhood.

“Ask the developer if he’ll work with you. It will help him eliminate the carrying costs of unsold units, so he just might be willing to do it.”

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